December market update and investment risks

The following reflects the general views of our Treasury & Investment Office (T&IO) and should not be taken as a recommendation or advice as how any specific market is likely to perform.

These views are as at the end of December 2025.

The value of investments can go down as well as up. Investors could get back less than they put in.

Please remember that past performance is not a reliable indication of the future performance.

Overview

As 2025 drew to a close, signs of slowing global growth became more pronounced, even as data revealed pockets of resilience. While headline figures suggested mixed performance, the underlying trend pointed to cooling across major economies.

In the US, Gross Domestic Product (GDP) advanced 4.3% driven by strong consumer spending, exports and government investment. That contrasted with a weakening labour market, which prompted the Federal Reserve to cut interest rates in October and December, even though inflation remained above target. This brought the target range down to 3.50%-3.75%.

The UK economy remained under pressure, with negative growth in the three months to October, following growth in the three months to September. The annual rate of inflation was 3.2% in November, down from 3.6% but well above the Bank of England's 2% goal. The Bank trimmed interest rates by 25 basis points in December to 3.75%.

In the eurozone, GDP rose 1.4%, while inflation stayed close to 2%, in line with the European Central Bank's target. The bank kept borrowing costs unchanged in December, leaving the deposit rate at 2%, and reiterated its data-dependent approach.

Japan's economy contracted an annualised 2.3% as exports struggled. Despite this, the Bank of Japan raised its policy rate by 25 basis points to 0.75% in December, the highest since 1995, marking a cautious shift from decades of ultra-loose monetary policy.

In the third quarter of 2025, China's economy grew 1.1%, meeting targets but masking underlying fragility. Retail sales softened and property investment remained deeply negative.

Equities (or shares)

UK equities delivered solid gains. The FTSE All-Share Index rose and was ahead of the broad global market and most other regions. Performance was supported by a falling inflation rate and interest rate cuts. Investors also welcomed the fiscal headroom created by the November Budget. Shares in UK-listed mining companies performed particularly well as the prices of precious metals such as gold and silver rose. Financials and healthcare stocks also outperformed. Consumer-related companies and industrials lagged.

US stockmarkets rounded off the year with further gains. However, US equities trailed most other regions and the broader global market. In 2025, the S&P 500 Index registered its third consecutive year of gains, after recovering strongly from April's tariff-driven declines. Investor confidence has been lifted by robust US economic growth, interest rate cuts as well as excitement about AI-focused stocks.

Europe was one of the best-performing equity regions. Optimism about Germany's stimulus spending and a rotation away from elevated US valuations drove the market. Spain's stockmarket continued to climb.

The Japanese equity market rallied following the election of Sanae Takaichi as Prime Minister, whose pro-growth agenda was warmly received by investors.

What do you mean by Equities?

• Equities are commonly known as "shares". When a fund buys a company share, it is investing in a company and, in exchange, receives a share of the ownership of that company. Shares give two potential investment benefits:
  
  
  • share prices may increase as the value of the company increases.
    
    
  • companies may pay dividends - regular payments made to shareholders based on how well the company is doing.

What are the general risks of this type of asset? 

• Over the longer-term (over 10 years), equities are considered to offer greater growth potential than many other asset types. However, the value of any investment can go down as well as up and so there is a higher risk of losing your original capital than investing in fixed interest securities (see below).

• The financial results of other companies and general stock market and economic conditions can all affect a company's share price, and consequently the value of any fund investing in that company.

Fixed interest

The price of UK government bonds (gilts) rose, outperforming both US Treasuries and European sovereigns. The yield of the 10-year UK gilt fell to 4.6% at year-end from 4.7% at the end of the third quarter.

The quarter was mostly positive for global government bonds. In the US, the 10-year Treasury yield ended at 4.1%. The Federal Reserve (Fed) lowered interest rates twice bringing interest rates into a range of 3.50% to 3.75%. However, Fed Chair Powell struck a cautious tone, noting that the Fed is facing a very challenging situation , as it attempts to tackle both rising inflation and rising unemployment.

Globally, the standout performer were gilts, which rose 3.1%, while German bunds declined 0.5% over fears surrounding fiscal stimulus announcements.

What do you mean by Fixed Interest?

• Fixed interest securities, more commonly known as "bonds", are loans issued by companies or by governments in order to raise money.
  
  
• Bonds issued by companies are called Corporate Bonds, those issued by the UK government are often called Gilts or UK Government bonds and those issued by the US government are called Treasury Bonds.
  
  
• In effect, all bonds are IOUs that promise to pay you a sum on a specified date and pay a fixed rate of interest along the way.
  
  
• Index-linked securities are similar but the interest payments and redemption value are normally increased by a price index e.g. for UK government index-linked securities, interest payments and redemption value are increased in line with the UK Retail Price Index.

What are the general risks of this type of asset

• On the whole, investing in Government or Corporate Bonds is seen as lower-risk than investing in equities. To date, no UK government has ever failed to pay back money owed to investors. But with Corporate Bonds there is a risk that the company may not be able to repay its loan or that it may default on its interest payments.
  
  
• Corporate and Government bonds are sensitive to interest rate trends. An increase in interest rates is likely to reduce their value, and hence the value of any fund investing in them.

Property

For the three months to end-November 2025 ( the review period and the latest available data at the time of writing), capital values for All UK commercial property fell by 0.5%, according to property consultant CBRE. This is the first decline in capital values in a three-month period since early 2024. Including rental income, the total return over the review period was 0.9%. Total returns were positive in retail and industrials, but fell marginally in offices. Capital values were largely unchanged in the retail and industrial sectors in the review period, but this masks small falls in November. However, property values fell in each month of the review period in the office sector. Rental values grew in all three sectors in the three months, but growth was strongest, by far, in industrials.

What do you mean by Property?

• For our funds we would mean commercial property investment. This generally means the fund is sharing in the returns from the ownership of some buildings (for example, offices and shopping centres).
  
  
• The value of the property may increase and tenants may pay rent to the owners of the building.

What are the general risks of this type of asset

• Property can be difficult to buy and sell quickly. Fund managers may have to delay withdrawal of money by customers from a property fund until they can sell some of the buildings the fund invests in.
  
  
• The actual value of a property is what someone is prepared to pay for it - an actual sale value. As sales are infrequent, interim valuations are based on a valuer's opinion and may be revised up or down from time to time. This can affect the value of a fund invested in commercial property, with the value possibly fluctuating significantly and could result in an investor not getting back the amount they originally invested.
  
  
• This leads to a number of risks for funds investing in property:
  
  
  • Cash could remain uninvested as property assets can be difficult to buy, leading to lower returns than expected.
     
  • The value of the fund may be reduced if a large number of withdrawals are requested and it is necessary for properties to be sold at reduced prices.
    
    
  • There may be delays removing your money from the fund if property cannot be sold.
    
    
  • Property fund valuations may be revised periodically, upwards or downwards.
    
    
  • Rental income is not guaranteed. Defaulted rent and unoccupied properties could reduce returns.
    
    
  • If the size of the fund falls significantly, the fund may have to hold fewer properties, and this reduced diversification may lead to an increase in risk.